Ireland’s Central Bank Governor, Gabriel Makhlouf, has defended Ireland’s remarkable economic growth, which was forecast to be 12.2% last year, more than three times the growth of the overall EU.
This growth has been driven largely by big technology and pharmaceutical groups, which critics say have distorted the country’s gross domestic product (GDP) through accounting manoeuvres and low Irish tax rates.
Growth from real factories, real people
However, Makhlouf claims that much of Ireland’s growth comes from “real factories with real people” and that it is wrong to conclude that this growth is all about intellectual property. He states that a remarkable proportion of the top ten medicines in the world are made in Ireland, which is the European base for many large US companies, including Google, Apple, Meta, Intel and Pfizer, among others.
Ireland’s 12.5% corporation tax rate has also helped its economy to rebound strongly, despite the sudden end of the previous “Celtic Tiger” boom caused by the 2008 financial crisis.
Last year, Ireland’s 3.5% quarter-on-quarter GDP growth single-handedly prevented the eurozone economy from stagnating in the final three months of the year. However, Nobel-prize winning economist, Paul Krugman, called it “leprechaun economics” when Apple moved its intellectual property assets to its Irish base in 2015, sending Ireland’s GDP up 25%.
The Irish Times also published a warning that Ireland’s economic data was “meaningless as a guide to how the economy is doing”.
The Irish Central Bank uses alternative growth measures to strip out the impact of multinational companies, such as a version of gross national income (GNI star). The central bank expects GNI star to show much slower growth of 5.9% in 2022.
MNCs: still key growth driver
Makhlouf stated that the exports by multinational companies in Ireland “have gone up and they’ve been a big driver” of the country’s growth, but that they distort the country’s statistics. This is because a lot of the profits go back to the parent companies, rather than remaining in Ireland.
The outlook for Irish growth has weakened recently due to high inflation, rising interest rates, and slowing global growth. Additionally, a wave of job cuts recently announced by several large technology groups is expected to hit their Irish units.
Last year, there was unusual volatility in Ireland’s industrial production data, which regularly rose or fell by more than 10% from one month to the next, prompting the statistics office to review how it calculated seasonal adjustments. The Irish central bank attributes some of this volatility to “relocations of balance sheets to Ireland” by large multinational companies, as well as “volatility of output” by these groups in sectors such as chemicals and pharmaceuticals.
In response to these criticisms, Makhlouf stated that exports by multinational companies should not be blamed for Ireland’s growth. He said that the global economy had shifted from a goods-based economy to a service-based economy, which meant that companies, such as those located in Ireland, could generate significant value without having large tangible assets.
The Governor also stated that there was a lack of understanding about the role of small and medium-sized Irish companies in the country’s economic growth. He said that these companies often act as suppliers to larger multinational companies, and that this sector is essential to Ireland’s overall economic performance.
Makhlouf also noted that the recent political instability in Ireland, following the resignation of its Deputy Prime Minister, Frances Fitzgerald, had not had a significant impact on the economy. He stated that the Irish economy was relatively resilient, as evidenced by its performance during the financial crisis, and that he expected it to remain stable despite the ongoing uncertainty around Brexit.
Despite the controversy surrounding Ireland’s GDP figures, Makhlouf believes that the country’s growth is a result of “real factories with real people.”
He points out that many top-selling medicines in the world are manufactured in Ireland, and that companies like Intel, which has been in Ireland for decades, also make products in the country. Makhlouf also acknowledges that exports by multinational companies in Ireland have gone up and are a significant driver of the country’s growth, but that a lot of the profits do not stay in Ireland and therefore should not be included in GDP calculations.
The Irish central bank uses alternative growth measures, such as GNI star, to get a better picture of domestic demand and to strip out the impact of multinational companies. Makhlouf expects GNI star to show slower growth of 5.9% in 2022, compared to the 12.2% growth in GDP. Makhlouf said that the Irish central bank does not use GDP to assess the Irish economy, but instead uses a range of other indicators, such as employment, income and household consumption.
The Irish economy is facing several headwinds, including high inflation, rising interest rates and slowing global growth. The country has also been hit by a wave of job cuts announced recently by several big tech companies, which is expected to affect their Irish units.
These challenges, along with the controversy over the accuracy of GDP figures, highlight the need for Ireland to diversify its economy and reduce its dependence on multinational companies.
While Ireland’s economic growth has been impressive in recent years, there are concerns about the accuracy of GDP figures and the country’s reliance on multinational companies.
The Irish central bank is using alternative measures to get a better picture of the domestic economy, and there is a need for Ireland to diversify its economy and reduce its dependence on multinational companies.
